Finance Minister Arun Jaitley today launched gold options trading on the leading commodity bourse MCX and said this is one of the steps towards formalising trade in the yellow metal.

"This marks a very important evolution in trading of yellow metal itself. It hedges all risks by giving them (traders) the option of futures," Jaitley said while launching the options trade on the auspicious day of Dhanteras.

Options are an instrument that give the buyer a right to buy or sell an underlined at a present price on a future date. They are of two types: calls (right to buy) and puts (right to sell). According to market experts, options are also a much better hedging instrument as compared to futures for hedgers.

“Indians are great buyers of gold. This new product will be extremely successful,” he said.

Emphasising that the government is taking efforts to formalise gold trade, Jaitley said, "I am sure more it formalises, better it is for consumers, jewellers and those trading in this. That's in consonance with the business environment for future that we see for us".

This is the first product for options trading that the regulator SEBI has allowed after 14 years of commencement of commodity exchanges in the country, he added.

Gold option contract, with Gold (1 Kg) futures as underlying, expiring on November 28, 2017 and January 29, 2018 are made available for trading from Tuesday.

Saurabh Chandra, Chairman, MCX said, “The launch denotes one of the most significant reform measures since modern commodity derivatives trading started 14 years ago. There has been a very conscious effort by the government and SEBI to develop and integrate commodity markets in a phased manner.”

“We are encouraged by the support and the approach, marked with a great degree of pragmatism. The introduction of options gives a strong impetus towards systematic development and transformation of commodity derivatives market in India, ushering in a new era in price risk management in response to stakeholder expectations,” he added.

Mrugank Paranjape, MD & CEO, MCX said, “The long wait for Commodity options has finally come to an end. As a low risk and powerful tool, the product further extends the benefits of effective price risk management to the stakeholders at large. Options would complement the existing array of commodity futures contracts and help in enriching the informational efficiency of the market’s price discovery process. It gives market participants great flexibility to manage risk and achieve their trading objectives.”

The industry has waited for this new instrument since year 2003 when then NDA government opened up the Indian commodities market.